The CBI investigations into the UTI scam has already unearthed damning information on the nexus between politicians, bureaucrats, big business and the Trust. A cbi source told Outlook that the interrogations "have revealed the exact modus operandi employed to manipulate uti's investments." But since the investigators have been asked to stick to their brief—limit the probe to the Cyberspace scam—officials fear that much of what has surfaced may not be put under scrutiny.
For the record, the investigating agency has told the cbi special court that ex-uti chief P.S. Subramanyam and the two other Trust executives being investigated have "revealed that the uti decisions in similar cases may have been taken for reasons other than commercial consideration or business expediency." The agency has not officially said anything about the involvement of politicians, but they did speak of their hand in various deals entered into by the uti.
So how does a company tap the uti to invest in it? In the normal course, it forwards a proposal to uti's investment division, which vets it and passes it on to the equity research and credit rating cells. The file with their observations then goes to the chairman's office, who takes the final decision. It is at this final stage that influence works. Says a cbi official: "Sometimes a politician or a bureaucrat pulls strings. But we know of instances where corporate houses too have managed the uti bosses."
Once the funds are allocated to a rogue company, it is diverted to another firm, ostensibly for services rendered. The money is further transferred to a third or even fourth party before it is used for insider trading or for paying off those who helped swing the deal. uti insiders say there are chartered accountants (CAs) who specialise in this line of transfers—a booming business in Mumbai. The commissions paid are common knowledge in financial circles. Five to six per cent for the brokers, 2-3 per cent for the CAs and 25-30 per cent is shared between the fixers and politicians who pulled the deal through. Finally, the firm that the uti invested in is left with about 60 per cent of the original capital.
In the Cyberspace case, the cbi arrested Rakesh Mehta of Renaissance Securities since a part of the Rs 32 crore paid to the former by uti had been routed to Mehta's company in a roundabout way. The agency suspects that the money was used to prop up Cyberspace shares. There is also talk that Mehta had a role to play in Subramanyam okaying uti's investment in Cyberspace three days after turning it down. The uti chairman and the two other senior uti executives arrested were released on bail on August 7 and are under instructions from their lawyers not to speak to the press.
Subramanyam reportedly told colleagues to reverse the decision not to invest in Cyberspace or risk losing their jobs. Says a uti official: "It needs a tough man to put his foot down and say no. In uti, what the chairman says goes. No one thinks of questioning him."
Overriding the advice of the equity research cell (erc) is nothing new. uti officials will tell you of at least 20 cases where money was put in against the advice of the erc. Its negative assessments of firms like Baron International, Binami Zinc, Shonk Technologies, Welspun Industries and Rama Phosphates had no influence on the decision makers in uti. An official at the Trust's Credit Rating Cell says the erc was taken so lightly that no one even thought of influencing their assessment!
Says an ex-uti official: "The trend since the 1990s has been to have pliable officials at the top so that people can fool around with a huge corpus of funds. Money has been pumped into projects which did not even have half a chance of taking off. One project from 1998 near the Delhi-Mathura Road till today has nothing more than a barren plot of land."
According to cbi sources, since as far back as 1994 when uti had favoured a Mumbai-based firm—investing Rs 775 crore and picking up shares at a higher value than the market price—a political hand has always been suspected behind many of the investment decisions. Incidentally, the cbi had even then made two requests to the finance ministry—one in 1994 and the other in 1997—to proceed against top uti officials but were turned down. Efforts are now on to revive the case.
uti officials however feel that Subramanyam is being made a scapegoat. Asks an official: "What's all this noise about Cyberspace and Rs 32 crore when there are bigger scams. No one wants a detailed probe. That would bring out the other skeletons." The cbi in turn says it's all for widening the investigation. But is the government ready for it?